The economic upheavals of the past few years have given Americans a crash course in finance. But there's one financial subject that's still hazy to most people, bonds. Bonds are important tools used by businesses and government to manage risk, protect against commercial losses and even raise money for important infrastructure projects. If you're one of those people who want to know the difference between a surety bond and an indemnity bond, here are some questions and answers that should help.

How do bonds work?
There are dozens of types of bonds that serve different purposes, from those that act like a loan to those that are more like insurance. But what they all are is an agreement between two or more parties that one of them will fulfill the financial obligation spelled out in the terms of the bond. This means paying back the amount with interest.

Can anyone buy a bond?
Yes, but most people buy parts of a bond as part of their investment or 401k portfolio.

Are bonds secure?
Yes, they are normally considered to be a low risk, but low reward investment.

What is a fidelity bond?
Fidelity bonds are issued as insurance against losses or damages caused by specific employees. They are usually used to provide security during big projects.

What is a surety bond?
A surety bond is a sort of three party loan wherein one party agrees to pay second party for losses if a third party does not fulfill their financial obligations.

What is an indemnity bond?
An indemnity bond is a sort of insurance policy on performance. For example, they may be taken out as security against an investment in a new business.

What is a bond auction?
An auction where institutions bid on bonds to add to their portfolios. The winning bidder collects interest for the length of the bond.

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Surety and fidelity bonds, types of bid bonds, are often offered by insurance companies. These bonds, which may also be referred to as indemnity bonds, are especially useful to employers.

Employers often take out a surety bond from their insurance company when they enter into a risky contract with an employee. By taking our a surety bond, or bid bond, they can see to it that their employees are held liable for any loss of money or damage they cause their employers. If, for instance, a catastrophe of some sort strikes, and employees fail to live up to an obligation they made to their employer, they can be held in liability for that. Employees are then asked to pay for or replace damaged items, or to provided their employer with a form of monetary reimbursement. These bonds are easy to claim, and they are, for that reason, incredibly useful to employers and other policy holders.

Employers take out fidelity bonds, or indemnity bonds, for the same reason. Fidelity bonds, which are typically offered to commercial enterprises only, protect policy owners from any losses they may occur as a result of fraud. These bonds are just as easy to contract and claim as surety bonds. And employers often use them, for that reason.

Both of these bonds are easy to manage and easy to settle outside of court. And both of these bonds provide security to the employers, or principals, who choose to use them. This sense of security is truly invaluable to most employers!